27 June 2018

Trade war: Harley-Davidson wants to avoid tariffs

Harley-Davidson wants to shift part of its motorbike production overseas to avoid having to raise prices for customers in Europe due to the EU's retaliatory tariffs on US goods. A bitter setback for Trump in the trade war with the EU?

In line with Trump's propaganda

Harley-Davidson's decision to shift part of its motorbike production overseas could work in Trump's favour, warns Der Standard:

“The opinion columns are talking of a 'counterstrike': when people start losing jobs they'll see that Trump's trade war leads nowhere. This theory is false. The president's strategy is not about economic success. Trump's supporters in the former industrial heartlands of the Midwest identify with him. He glorifies the American workers, casting them as heroic figures who have been conned by the rest of the world and the US elite. He gives them self-confidence. And he also makes them feel that he is fighting for them. But such a battle also claims victims. Trump can capitalise on the Harley-Davidson case.”

Economics lesson for Trump

“Officially, the White House has reacted with the lame claim that Europe's unfair trade practices are to blame for the whole debacle. Unofficially, Trump has ranted about Harley in a series of tweets. This is a sign that these measures have hit him where it hurts. The dispute also serves as a wonderfully colourful illustration of boring economic theory in action. Economic theory talks of the 'comparative advantages' international trade brings for everyone - countries, manufacturers, employees and consumers alike. Now Trump, with his trade policy and his tweets, has managed to provide a much clearer practical example of this than the countries, manufacturers, employees, consumers, and he himself would have cared to see.”

A lose-lose situation

Jydske Vestkysten sees no way out of this trade war which is detrimental to all involved:

“Now jobs are being outsourced in the US and in both Europe and the US a number of goods will become more expensive. A lose-lose situation. ... Bit by bit we are also losing the huge advantages gained from decades of smoothly functioning trading. ... Free trade strengthens market mechanisms such that customers and users can go wherever they want to get the best value for money. Unfortunately there is nothing to suggest that Trump wants to subject his populist campaign slogans to a reality check. Which is why the European response, as lamentable as it is and as little as we want it, will mirror Trump's actions. ”

Tax reforms as way out

“There is no magic formula here but it does pose a genuine challenge for economic policy in the coming years, provided that we want to avoid a populist protectionism that stigmatises other states today and the digital giants tomorrow. We can start by raising taxes on profits while cutting taxes on production factors. This shift would have a positive impact: Western states could enhance one of their key strengths by providing access to their markets and at the same time boost their competitiveness in the export industry.”